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Disney Misses, but We Stand By Our Fair Value Estimate

The wide-moat firm is preparing for its transformational leap into direct to consumer with the launch of Disney+ in November.

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Disney (DIS) posted a weak fiscal 2019 third quarter as both revenue and operating income fell short of consensus expectations. The firm consolidated both Fox Entertainment assets and Hulu in the quarter as it prepares for the transformational leap into direct to consumer with the launch of Disney+ in November. Management maintained its aggressive positioning in the DTC space by announcing a $12.99 bundle of Disney+, the ad-supported tier of Hulu, and ESPN+. We maintain our wide moat rating and our fair value estimate of $130.

Revenue for the third quarter was up 33% year over year to $20.2 billion, reflecting the Fox acquisition. The media networks segment grew 21% year over year as affiliate fee revenue was up 20% in the quarter as the 16% growth from Fox and 8% from higher rates more than offset the 2.5% decline in subscribers and the 1% negative impact of the new revenue recognition standard. Advertising revenue at broadcast networks was down over 4% as higher pricing was more than offset by lower impressions due to ratings. Ad revenue at the cable networks improved by 29% due to the Fox consolidation (18%), higher rates (6%), and more impressions (5%) as there were two more NBA Finals games this quarter.

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Neil Macker does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.